Morgan Stanley downgraded Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB) to Equalweight from Overweight, on valuation and Morgan Stanley’s less optimistic estimates for the banks’ net interest income.
For Wells Fargo (NYSE:WFC), analyst Betsy Graseck sees the bank’s stock already pricing in an expected increase in the company’s guidance for ROTCE above the current ~15% target. “Additionally, our work shows that Wells is not a beneficiary of rate cuts, with our NII estimates now below consensus due to expected NIM contraction,” she wrote in a note to clients. She forecasts a net interest margin contraction through year-end 2026 based on 125 basis points of Fed cuts as pressure from floating loans outweighs the bank’s ability to reprice deposits. Thus, Morgan Stanley estimates for Wells Fargo’s NII are 1.5% below consensus for 2026 and 2.5% below for 2027.
The firm increased its price target for Wells Fargo stock to $95 from $87.
The Equalweight rating aligns with the SA Quant rating and the average SA Analyst rating, both at Hold, and diverges from the average Wall Street rating of Buy.
Morgan Stanley sees limited upside for U.S. Bancorp (NYSE:USB) stock from current levels, as MS’s price target for USB implies an 11% upside, below the median for MS’s bank coverage. “We see USB benefiting into rate cuts, with margins expanding with Fed rate cuts, but with little visibility into deposit behavior this cycle, we acknowledge that deposit costs could remain elevated at times and create intermittent pressure on NII,” the analyst said.
Its price target rose to $56 from $52.
Morgan Stanley’s Equalweight rating on U.S. Bancorp (NYSE:USB) contrasts with the SA Quant rating of Strong Buy, and the average SA Analyst rating and average Wall Street rating, both at Buy.
U.S. Bancorp (USB) stock dropped 1.0% and Wells Fargo (NYSE:WFC) stock slipped 0.4% in early Monday trading.